NEW DIRECTIONAL PUT PLAYS

Intl. Business Machines - IBM - close: 183.08 change: -1.70

Stop Loss: 187.50
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
IBM is in the technology sector. The company has grown from a massive hardware manufacturer into a global information technology services company.

The company reported earnings on April 17th. Results were in-line with Wall Street estimates on the bottom line at $2.54 per shares. Revenues fell -3.9% and missed estimates by a wide margin. Management reaffirmed their 2014 guidance. This was the fifth quarter in a row that IBM missed analysts' revenue estimates and its eight quarter in a row of revenue declines. Shares plunged from $196 to $187 on this earnings news. Since its quarterly report IBM's stock has rallied just high enough to fill the gap and then reverse lower.

The company is currently facing a new problem and that's China pressuring local companies to stop using U.S. technology. Actually it's not a new problem. This has been trending for a couple of years and the issue was exacerbated after the Edward Snowden scandal. Now many foreign governments distrust any tech hardware from big name U.S. corporations for fear there could be U.S. spying malware on it.

This tension between China and U.S. has escalated following America's recent allegations of five Chinese military officers hacking American businesses. In response the story now is China's government is pressuring large state-run banks to stop using IBM servers and replace them with local domestic hardware. Chinese officials are arguing that using IBM machines could be a national security threat. The Chinese market accounts for about 5.5 percent of IBM's total sales.

This political pressure to stop buying U.S. technology could last a while, especially as China takes a more belligerent pose against the west and its neighbors.

Technically shares of IBM are underperforming. The stock just broke down below support near $185.00 and technical support at its simple 200-dma. There appears to be significant support near $172.00. Coincidentally the point & figure chart is bearish and forecasting a $172 target.

Tonight we're suggesting bearish put positions at the opening bell tomorrow. We're not setting a target but $175-172 is a good spot to aim. I wouldn't be surprised to see a short-term bounce at $180.

- Suggested Positions -

Buy the Aug $180 PUT (IBM140816P80) current ask $4.60

Option Format: symbol-year-month-day-call-strike

Annotated Chart:

Entry on May -- at $---.--
Average Daily Volume = 3.2 million
Listed on May 28, 2014